Biz & IT —

Vista, Office 2007 drive record profits for Microsoft

Vista and Office were cash cows for Microsoft during its third quarter. The …

Some may question the future of Microsoft, but up in Redmond they just continue to rake in the dough. Microsoft's fiscal third-quarter profits were up 65 percent to $4.9 billion, or 50¢ a share. Revenue for the quarter was $14.4 billion, thanks mostly to Vista and Office 2007. Ok maybe the accountants hedged their bets a little by pushing—excuse me "deferring"—$1.2 billion in revenue from holiday season Vista upgrade coupons into the third quarter, which ended March 31.

Drop the deferred income from the picture and it's still an impressive quarter—client revenue was up 30 percent over last year, at $4.1 billion. Revenues from Vista and Office even outperformed Microsoft's internal forecasts. Vista revenues were $300 million to $400 million higher than expected, while Office 2007 sales figures were $200 million above Microsoft's internal targets.

Microsoft is also changing how it reports revenue from operating system sales. In previous years, Microsoft would recognize as much as a quarter of Windows revenues over a three-and-a-half-year period to reflect the costs of add-ons and upgrades provided by the company. That has changed with Vista, as the software giant will record all revenues from an OS sale during the quarter the sale takes place.

The only bit of bad news for Microsoft during the quarter came from the entertainment and devices division, which is the home of the Zune and Xbox, and the online group. Revenues in entertainment and devices dropped 21 percent and Microsoft attributed the drop to lower Xbox 360 sales. The online group reported a $200 million loss, although revenues were up 11 percent. The loss was due in part to investments in online services as well as other cost increases. Online advertising revenue grew 23 percent for the quarter.

Naturally, Microsoft officials are upbeat. "I am extremely pleased that we delivered a quarter of strong double-digit growth," said CFO Chris Liddell. "And I am looking forward to a very good finish to this fiscal year with strength continuing into fiscal 2008." With that, Microsoft predicts revenues cooling somewhat to $13.1 billion to $13.4 billion and earnings per share around 37¢ to 39¢ for its next fiscal quarter, which ends June 30. For the full fiscal year, Microsoft is predicting profits of $1.48 to $1.50 a share on sales of as much as $51.2 billion.